European Financial Market Integration

Abstract

Market integration is the process towards the formation of a single market. In a perfectly integrated market, geography is a non-issue for buyers of goods and services. However, markets are usually not perfectly integrated in reality — geography typically does play a role. There are barriers to trade, either because of the nature of the markets or because of institutional restrictions. For example, the nature of the market may be that buyers do not want to travel too far to buy the goods (e.g. their Saturday morning cappuccino or their groceries). Examples of institutional restrictions are tariffs, waiting time at a border, product labels in a foreign language and differences in product standards. Continued market integration has been a central mission of the European Union (EU) since its inception. The Treaty of Rome (1957) envisaged the establishment of a common market founded on the principle of free movement of goods, services, people and capital.